Linkages between multinationals and small and mid-sized businesses are key for competitiveness and growth, FIU Business-AS/COA study finds.

Carlos Parra
Carlos Parra

The growing number of partnerships between multinational corporations and small- and medium-sized businesses are driving growth and development in Latin America, reveals a joint study by the Americas Society/Council of the Americas (AS/COA) and Florida International University College of Business.

These relationships, the research indicated, can be leveraged for innovation, growth, and competitiveness for both business actors, especially in the increasingly competitive Latin American business landscape. Today, multinational corporations (MNCs) and small and medium-sized enterprises (SMEs) alike face challenges to boost profitability, market share and equity of their firms.

The white paper, MNC-SMC Linkages in Latin America, was prepared by FIU Business professors Carlos Parra, in the Department of Information Systems & Business Analytics, and Jerry Haar, executive director, Office of Executive & Professional Education, in partnership with the AS/COA Tech Series.

Jerry Haar
Jerry Haar

In late 2017, researchers conducted interviews with executives from six MNCs – CISCO, SAP, Microsoft, UPS, Citi and Google – operating in Latin America. They agreed that SME’s in the region are essential to their current business as well as to their growth prospects. Executives at the technology firms pointed out that boosting innovation at the SMEs will allow them to challenge incumbents.

Embracing change is a necessity.

SMEs play a vital role in economic growth and development via employment, innovation, tax revenue generation, entrepreneurial activities and their contribution to economic competitiveness of clusters and regions. MNCs increasingly turn to them for services as suppliers, distributors, customers and innovators.

Several countries are taking active roles to facilitate MNC-SME linkages. The Salvadoran government is strengthening the productivity of enterprises and local services that foster job creation and is exploring public-private partnerships. In Costa Rica, a multinational cement company runs a program to build ca¬pabilities for SMEs and works with banks to relax credit conditions to improve investment options for these small companies.

There are also numerous factors that impede these partnerships, among them the difference in companies’ fit and size, access to finance, lack of information, search costs, and uncertainty. Both types of firms are more geared to do business with firms of similar sizes.

Vibrant digital ecosystems.

The companies that participated in the study provide logistical, financial and technological services that are essential to many industries and help make LATAM SMEs more competitive and innovative.

Logistics and financial services firms prefer to take a direct engagement path, establishing customer engagement as well as regulatory and institutional linkages with LATAM SMEs. Tech firms, however, favor taking a path that first involves establishing networks of partners, which also allows SMEs to serve other SMEs, in turn helping level the playing field. Thus, tech MNCs tend to first develop programs – or work with aggregators and industry-based organizations – to establish talent and societal development linkages. This is usually done simultaneously while (and sometimes before) addressing the needs of LATAM SMEs through customer engagement, supplier interaction and investment linkages.

Both paths aim at MNCs and SMEs being part of, contributing to and expanding a robust digital ecosystem from which all actors emerge as winners, thanks to the establishment of synergistic linkages.

Click here to read the full AS/COA paper.

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